Apple (Nasdaq: AAPL) may have become the largest dividend payer in the world and may have a cash pile bigger than the market cap of GE, but the market is still not impressed. After touching a record high before the result announcement, the stock fell as the company continued to struggle with growing its iPhone sales and failed to deliver an impressive outlook.

Apple’s Financials

Apple’s second quarter revenues grew 4.5% over the year to $52.9 billion, falling short of the Street’s forecast of $53.04 billion. EPS of $2.10 was ahead of the market’s projected earnings of $2.02 per share. This was the highest quarterly revenue ever in Apple’s history, along with all-time unit and revenue records for iPhone and Apple Watch, services and Mac, and four out of its five geographic segments.

By segment, Apple’s iPhone revenues grew a modest 1% over the year to $33.3 billion. iPhone sales actually fell 1% over the year to 50.8 million units while the market was looking for sales of 52 million units. iPad sales continued to decline and iPad revenues fell 12% over the year to $3.9 billion, driven by a 13% reduction in units sold. Mac sales grew 14% to $5.8 billion as units sold improved 4% to 4,199 million. Services revenues grew 18% to $7 billion and revenues from other products grew 31% to $2.9 billion.

By region, Apple’s revenues from the Americas grew 11% over the year $21.2 billion and sales from Europe grew 10% to $12.7 billion. Revenues from the Greater China region continued to fall and reported a decline of 14% to $10.3 billion. Revenues from Japan grew 5% to $4.5 billion and the rest of Asia Pacific improved 20% to $3.8 billion.

During the quarter, Apple’s board approved a 10.5% increase in the quarterly dividend to $0.63 per share per quarter. Overall, Apple raised its capital returns program by $50 billion, and plans to spend a cumulative total of $300 billion by the end of March 2019 as part of the returns program, thus becoming the biggest dividend payer in the world.

Apple’s pile of cash also continues to grow. It ended the quarter with $256.8 billion cash and equivalents. After adjusting for the $84.53 billion in long-term debt, Apple still had $172.3 billion in net cash at the end of the quarter.

For the current quarter, Apple forecast revenues of $43.5-$45.5 billion, with gross profit margin between 37.5% and 38.5%. The market was looking for revenues of $45.6 billion.

Apple’s iPhone

Probably the biggest disappointment in the quarter was the lower iPhone sales for Apple. Apple believes that the reduced sale was because the consumers were holding back purchases for new phones in anticipation of the latest iPhone. This year, Apple is expected to release its tenth anniversary edition. Many expect that the phone will include features such as OLED display, wireless charging, 3-D facial recognition, and a curved display. Some are labeling the release of the phone as the supercycle as they anticipate that Apple will do a complete redesign of the phone.

Apple’s Services Revenues

Apple has earlier said that it wants to double the revenue of its services business by 2020, and for now, it appears to be an achievable target. The services segment is the fastest growing business segment for Apple. During the last quarter, the segment generated $7 billion in revenues. Within services, revenues from the App Store were up 40% and its developer community is growing by over 20%. According to Apple, the total number of paid subscriptions across Apple-branded services and third-party have now crossed more than 165 million users. To make the segment more attractive, Apple has been investing in content. It entered into content licensing agreements with Apple Music for a Tribeca Film Festival movie and also plans to release original series like Carpool Karaoke.

Recent rumors have circulated suggesting that Apple may be looking at Disney to help bolster content and consumers. Its cash pile may suggest that buying Disney may be a feasible option. But, I still believe that Netflix is a more realistic option. Disney may offer Apple a wider range of content, but it will come with a culture that may not marry easily with Apple’s Silicon Valley roots. A Netflix acquisition will help Apple get access to a wide range of proprietary content that can be integrated into Apple TV and iTunes and will also boost its hardware sales and content-driven subscriptions. 

It may also be a better way for Apple to forge ahead considering the struggles it has been having with its product launches. Earlier this month, reports circulated that big-name providers like Amazon, eBay, Google Maps, and Target have abandoned their Apple Watch app support in recent weeks. Alphabet had removed support from Google Maps with its latest update on April, though it claims that the removal may be temporary. Amazon has not confirmed the reports, but has said that it no longer supports Apple Watch. While no company has clarified the reason for doing so, it appears that the developers probably consider the watch a failed platform.

Its stock is trading at $147.06 with a market capitalization of $776.45 billion. It touched a record high of $148.09 ahead of the earnings announcement. It has recovered from the 52-week low of $89.47 it had fallen to in May last year.

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